Moderation Effect

As concluded from the literature and claimed in the previous chapter, besides clarifying the current UK manufacturing reshoring status, the second aim of this study is to explore the relationship among competitive priorities, shoring engagement types and business performance. As shown in Figure 3-2, a moderation theoretical model has been built up to show the correlations among these three variables. Details of the theoretical development of this model have been stated below.

Figure 3-2 Interaction Effect of the Theoretical Model

As discussed in section 3.1, the main effects between competitive priorities and business performances have been inherited from the extant literature and it is further demonstrated in discussions above that competitive priorities (manufacturing cost, SC cost, quality, delivery time and flexibility), have a positive influence on business performance. From the literature reviews, it has been seen many empirical research have been built up upon this correlation as the foundation, to discuss how the relationship will be affected when introducing a

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third variable which could come from any research fields in the supply chain area, such SC integration (Rosenzweig 2003), sustainability, corporate strategy (Oltra and Flor 2010), purchasing (Kroes and Ghosh 2010), HRM (Santos 2000), AM technology et al. Some of them, as a third variable, have consisted of a moderation effect and some of a mediation model. In this study, the author believes that the correlation between competitive priorities and business performance will be distinct when the company has different location footprints changes/has different types of shoring engagements. Therefore, the research argues that the shoring decision type will moderate the correlation between competitive priorities and business performance to come up with a moderation model rather than mediation model, and fitting the moderation definition below. The evidence to demonstrate a moderation relationship will be discussed below following four reasons from both practical and theoretical perspectives.

The moderation model refers to the fact that the independent variable X may have a positive/negative affect on dependent variable Y which means an increase in X will result in a Y increase. But this relationship between X and Y could be enhanced or weakened (even reversed) or modified by a third variable M (as shown in Figure 3-3).

Figure 3-3 Moderation Model

There are two types of moderator: continuous moderator and categorical moderator, as discussed in Chapter 4. Due to the shoring decision engagement practice, the moderator “shoring decision type” in this study is a categorical moderator. Therefore, the moderation definition could be updated to the existing relationship between X and Y and could be modified (distinct) for different categories of M (Oltra and Flor, 2010).

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From a practical perspective, there are many actual examples and news of reshoring, which have been major research resources since the beginning stage of reshoring research, around 2012. From the practical examples, the moderation model can be supported. Adidas announced on October 7, 2015 that the company would be moving their production back to Germany after 20 years in Asia, for its future in performance footwear with the Futurecraft 3D series. Adidas has partnered with Materialise, a pioneer and leading specialist in 3D printing, for its Futurecraft initiative. The purpose of developing this new product and reshoring back to Germany is to create a flexible, fully breathable carbon copy of the athlete’s own footprint; by matching exact contours and pressure points, it will set the athlete up for the best running experience. Linked with existing data sourcing and foot scan technologies, it opens unique opportunities for immediate in-store fittings. The new factory in Germany completed the first batch production in the third quarter of 2016 and they were ready for customers around December 2016. Obviously, Adidas’ reshoring is following its corporate strategy and it is the first shoe producer to move back to its home country. After one year of its reshoring having been conducted, figures show that by the end of the 3rd _quarter in 2016, Adidas’ net income had grown by 38% to €350 million, compared to other industry competitors. In addition, Adidas Group is 5th in the Global 100 Most Sustainable Corporations in the world. This practical evidence shows a clear difference of the business performance between Adidas and its competitors, who still produce in Asia (e.g. Nike, Puma, etc.), due to the difference in shoring decisions (reshoring vs. pure offshoring). Therefore, within the same industry and a similar position in the industry, the business performance, which is a result of combination work of competitive priorities and the different location experience, this practice justifies that the shoring decision engagement will modify the correlation between competitive priorities and business performance. Therefore, the model should be a moderation relationship.

Similarly, the reshoring literature also discussed the impacts of reshoring by comparing with other shoring engagement groups, such as offshoring and remain at home groups (Canham and Hamilton, 2013; Ellram et al., 2013), which also potentially reveal the support for the moderation model.

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Also, the research regarding congruence theory, which focuses on “fit” between strategy and operational activities, was originally called by researchers “throughout the literature, several of these studies have enunciated calls to conduct additional empirical research to investigate the role that the congruence between a firm’s manufacturing strategies and its operational actions plays on firm performance” (Bozarth and McDermott, 1998; Kathuria and Porth, 2003). Kroes and Ghosh (2010), and justified by Boyer and McDermott (1999) state that “The degree of fit between an organization’s competitive priorities and its key decisions regarding structural and infrastructural investment provides the key to developing the full potential of operations as a competitive weapon.” Later, it has been further established by Devaraj et al. (2004) and applied by Kroes and Ghosh (2010) to outsourcing areas, that “Empirical research has also confirmed that the degree of fit or congruence between a firm’s competitive priorities and operational activities are positively related to performance. For example, Devaraj et al. (2004) found that the fit between generic manufacturing strategies and manufacturing objectives is positively related to plant performance.” (Kroes and Ghosh 2010). Kroes and Ghosh’s (2010) research concludes that “Recent research strongly

advocates that to realize the potential for improved competitiveness, outsourcing decisions should be strategic in nature, and made in alignment with the competitive priorities of the firm.” and find “outsourcing congruence across all five competitive priorities to be positively and significantly related to supply chain performance.” According to the reshoring decision matrix developed by Gray

(2013), outsourcing is, in the majority, offshored outsourcing, which is one sub- group of shoring decisions (offshoring).

Therefore, Kroes and Ghosh’s (2010) research justifies when competitive priorities are aligned with outsourcing decision, business performance can be improved. In other words, congruence theory could be applied to shoring decisions, claiming that different shoring decision types will match different competitive priorities to result in different business performance, namely shoring decision types, and CPs are associated with each other, which matches the moderation definition. Therefore, when looking at all the shoring decision types,

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the shoring decision will moderate the relationship between competitive and business performance.

Besides the grand congruence theory, through the literature review, the association between competitive priorities and shoring decision types could be predicted as well, but lack enough evidence, especially the empirical types. However, this is why it is necessary to conduct this study. From the previous literature review, it has been clearly demonstrated that manufacturing strategy remains aligned with corporate activities, and competitive priorities are used to represent manufacturing strategy. Location decisions are part of corporate activities, which are supposed to be relevant to competitive priorities (Boyer and McDermott, 1999; Kroes and Ghosh, 2010; Grappi et al., 2015). In addition, location configuration provides the infrastructure of the operations, and as discussed in 3.2.1, the shoring decision type will affect business performance and also the manufacturing performance which are linked to competitive priorities. Therefore, shoring decision types could be linked to competitive priorities and competitive priorities could be associated with shoring decision types.

The final evidence to justify the moderation relationship is through distinguishing between moderation and mediation. Moderation has been explained above. Mediation refers to the relationship between X and Y not being a direct relationship. It is actually mediated by M, which means X is actually causing M first and then M causes Y, as shown in Figure 3-4. So, mediation can help people find the invisible mediator.

Figure 3-4 Mediation Model

Therefore, it can be seen that the clear distinction between moderation and mediation is the time/order of action that happened. The mediation must require X to happen first prior to M and M to happen prior to Y. However, the variables in the moderation model do not have an order of happening as a strict requirement.

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In this study, competitive priorities are not the drivers. The competitive priorities always exist within a business no matter in what way the firm changes the location (location changing happens dynamically and occasionally). There is no absolute order of competitive priorities and shoring decision. When this research was designed, in order to match the same time cross section, companies’ were asked for their competitive priorities and shoring decisions during the same time period, i.e. 2008-2016, and their current business performance, as shown in Figure 3-5.

Figure 3-5 Time Line

Therefore, without a clear order of the action conducted, the mediation model is definitely not suited to this study, which has justified moderation as the reasonable option. However, whether this moderation relationship exists or not needs the statistical tests in the following chapters.

Due to the lack of the research on competitive priorities within reshoring articles, and the field still being in an exploration stage, the hypotheses have been phased in a general way, without predicting the detailed trend. In addition, this way of forming hypotheses is more suitable for categorical moderator (Myhr and Spekman 2005; Oltra and Flor, 2010; Cao and Zhang, 2011; Chen, Preston and Xia 2013). The exact details will be explored through the analysis and discussed in Chapter 7.

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Following the main effect logic, every dimension of the competitive priorities should be moderated by the shoring decision type. Therefore, the hypotheses for interaction effects are:

H6: Shoring decision type moderates the relationship between the emphasis on the competitive priority of manufacturing cost and business performance H7: Shoring decision type moderates the relationship between the emphasis on the competitive priority of SC cost and business performance

H8: Shoring decision type moderates the relationship between the emphasis on the competitive priority of quality and business performance

H9: Shoring decision type moderates the relationship between the emphasis on the competitive priority of time and business performance

H10: Shoring decision type moderates the relationship between the emphasis on the competitive priority of flexibility and business performance